LONDON (Reuters) – Investors are betting on heightened political uncertainty and greater volatility in European stock markets ahead of European Parliament elections in May amid growing concerns about rising populism.
In one of the first concrete signs in financial markets that investors are bracing for political instability, VSTOXX futures, which reflect investor sentiment and economic uncertainty, have jumped in recent weeks.
While the classic gauge of fear — known as implied volatility, which tracks demand for options in European stocks — is currently at 15.68, futures that bet on the same thing over the coming months show a pronounced jump.
That’s because investors have piled on trades that bet on big swings in stocks as election day nears.
Implied volatility for futures contracts expiring in May show a pronounced jump to 16.8, compared with 15.35 in April. The contracts measure the 30-day implied volatility of the euro zone STOXX 50 index.
“We are seeing a bit of a kink around May when we have European elections and we have this wave of populism,” said Edmund Shing, head of equities and derivatives strategy at BNP Paribas.